Probably not the most important issue in the election, but personally I side with the economists on this one. Why should low-wage workers (or, more concerning, high-wage ones) whose income comes largely from tips be treated differently than low-wage workers whose income comes from wages? If low-income folks are being taxed too much then there are better solutions than carving out a specific exemption for compensation from tips. That’s bound to create incentives to restructure compensation that workers receive to be more tip-based and that’s the last thing we need.
The fact that this proposal comes on the heels of that Supreme Court ruling saying that it’s a-OK to tip politicians is not great either, whether or not that was a real factor that led to the proposal.
I agree. The reason restaurants can get away with not having to pay minimum wage is because of tips. Don’t give them (or any other industry) more incentive to pay their workers less.
They already are. Employers don’t have to pay them minimum wage.
A better solution would be to pay service industry workers a living wage and change the tip system to a round-up approach like in Europe, but if we can’t do that in the near term, not taxing tips might help them out a bit.
Setting aside the fairness issue of a maître d’ of a fancy restaurant paying less in taxes than a ditch-digger who is working at least as hard, the big issue with this isn’t necessarily the workers who are already receiving tips today. It’s that changing the tax code would perversely incentivize employers to shift more compensation to be tip-based rather than wage-based, and that would be an objectively bad thing for a number of reasons. One of many is that a worker who had received the majority of their compensation from tips over the course of a career would have much less in social security benefits when they retire.
One consequence of your proposal that I can see is that it would make all tips detrimental to the employer’s bottom line, so they would probably either encourage the employees to not report tips or else discourage customers from leaving tips.
Lots of tax exemptions (aka “loopholes”) are well-intended and sound good at first but then end up needlessly complicating the tax code and leading to unintended consequences as people find ways to game the system. Personally I don’t see the downside to just requiring people to report their total income (regardless of source) and taxing them appropriately. For low income people that appropriate number may be zero.
These kind of weird tax shenanigans and carve-outs with different income sources being taxed differently (or not at all) is exactly why so many billionaires pay such low taxes.
Taxing different groups of working class people differently from each other for no obvious reason isn’t a straw man argument, it’s the extremely direct and obvious outcome of this proposal. What I’d like to know is WHY this is supposed to be a good idea?
I may be persuadable if someone can articulate a clear argument in favor of this beyond the general sentiment that “lowering taxes = good.” Because as I already said above, if low income folks are currently paying too much in income taxes we can just change the tax rate at lower income brackets, which is very straightforward, has plenty of precedent, and would help all low wage workers equally. What is the logical reason to change the tax code to favor income from tips specifically?
I’m definitely in favor of Harris’ proposal to increase the minimum wage. I’m just not understanding the reasoning for this one.
I think this is the real crux of the issue. Why should we accept that “pay all service industry workers a living wage, or at the very least the legal minimum wage” is any more radical or unworkable a proposal than “let’s just stop taxing tips?”
The relevant laws are basically in place already. We just need to end the exceptions that deny those benefits to service workers.
Pitting working class people against each other is classic right-wing technique. There’s no need for that here.
The value of tips as income is different than that of salary or hourly wage.
I’d argue for most workers, salary is the most stable, as long as you don’t work for an employer who abuses exempt workers by making them work “free” overtime. At those kind of employers, hourly wage makes more sense.
Tip income is highly variable and less stable than either hourly or salaried. It has all the potential variability of “part time” hourly work with the additional instability of whether customers are feeling generous or not or often lower tips if someone else screws things up.
Making most of your income from tips is rife for abuse. Employers often skim tips in the service industry. Employees under-report tips because they are taxed and employers prefer that because it changes their payroll tax burden. But as a result, people who earned significant income from tips during their working years don’t have as much Social Security income in retirement. If they work for a company that has a retirement program, under-reporting tips reduces their employer-provided retirement.
I think the value in making tips tax free up to a certain maximum is to help make sure tips are fully reported, so that those workers don’t get cheated out of either source of retirement income.
Around here we have a higher minimum wage than the federally mandated one, and restaurants aren’t allowed to undercut it. (Cost of living here is crazy.)
Restaurants work around this with scams like adding a “living wage surcharge”, “mandatory gratuitites” (wherein the fine print states none of it actually goes to the staff, but you’re more than welcome to add on extra money that does go to the staff), and so on.
This allows restaurants to have lower prices on the menu, and then surprise you at the end with additional fees. Those fees are generally disclosed on the menu, but only in the fine print nobody reads by the disclaimers around eating raw/undercooked food.
Since you’ve already eaten, there’s not much you can really to dispute it – after all, it was right there and you didn’t read it – sucks to be you. Then none of that goes to the staff so you have to add even more to ensure they get something extra for their hard work.
How about just being honest and up-front and make your base prices higher rather than adding more at the end to make it look lower? Or maybe just don’t gouge your customer so much by charging $40 for something that has $5 of ingredients and takes only 10 minutes to prepare.
I was right there with you until that last bit. You pay for the chefs’ skills and service in a restaurant, not ingredients. If you don’t like the food, don’t eat there. It takes a lot more skill to turn $5 of ingredients into a great meal than to turn $50 of ingredients into a great meal. Any halfway competent cook can turn fresh, prime-grade halibut with a dollop of beluga caviar into something delicious. Now try that with black rockfish and garlic and onions. I’ve had a meal made with the latter that tasted better than the former, but that takes extreme skill worth paying for.
My wife, who is a top-notch cake decorator, deals with this all the time. “I don’t see why you charge so much. I could make a cake at home!”
“Then go ahead and do it.”
Paying for the skill and artistry does not come out in the ingredient bill. This is why “home cooking” restaurants never really appeal to me.
